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Advance Contracts for the Sale of Wool in Medieval England; An Undeveloped and Inefficient Market?

Adrian Bell, Chris Brooks and Paul Dryburgh ()
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Paul Dryburgh: ICMA Centre, University of Reading

No icma-dp2005-01, ICMA Centre Discussion Papers in Finance from Henley Business School, Reading University

Abstract: While it is commonly believed that derivative instruments are a recent invention, we document the existence of forward contracts for the sale of wool in medieval England around 700 years ago. The contracts were generally entered into by English monasteries, who frequently sold their wool for up to twenty years in advance to mostly foreign and particularly Italian merchants. Employing a unique source of data collected by hand from the historical records, we determine the interest rates implied in these transactions and we also examine the efficiency of the forward and spot markets. The calculated interest rates average around 20%, in accordance with available information concerning the interest rates used in other types of transactions at that time. Perhaps surprisingly, we also find little evidence of informational inefficiencies in these markets.

Keywords: Wood market; forward contracts; market efficinecy; Medieval England; Interest rates (search for similar items in EconPapers)
JEL-codes: G13 N13 N53 (search for similar items in EconPapers)
Date: 2005-02, Revised 2005-11
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Published in Journal of Banking and Finance 31:2, 2007, 361-380.

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